NSE₹₹The outlookHow have cement stocks fared recently?
The foreign brokerage has also raised its price target on the stock to13,620 per share.
The revised price target implies a potential upside of 17% from Friday's closing level.Morgan Stanley believes the bull case scenario is playing out for Ambuja Cements and UltraTech Cement.
"This, coupled with various cost-improving initiatives, means that both these companies should continue to see margin expansion despite a weak cement prices environment.
The brokerage has a 'Buy' rating on the Adani Group cement company, compared to its earlier rating of 'Reduce'.
NSE
₹
₹
The outlook
How have cement stocks fared recently?
Shares of cement companies Ambuja Cements Ltd. and UltraTech Cement Ltd. were trading with gains of up to 2% on Monday, July 15, following an upgrade by global brokerage firm Morgan Stanley.The foreign brokerage has upgraded Ambuja Cements to 'Overweight', and increased its price target to775 per share, suggesting a further upside of 14% from the stock's last closing price.UltraTech, meanwhile, received an 'Overweight' call from Morgan Stanley. The foreign brokerage has also raised its price target on the stock to13,620 per share. The revised price target implies a potential upside of 17% from Friday's closing level.Morgan Stanley believes the bull case scenario is playing out for Ambuja Cements and UltraTech Cement. It said both cement companies will see strong capacity additions and volume growth over the next few years."This, coupled with various cost-improving initiatives, means that both these companies should continue to see margin expansion despite a weak cement prices environment. Higher margins = higher valuations," it noted.As margins expand, the brokerage believes there could be upside risks to valuations and both these stocks could trade at around peak valuations across cycles, and hence it has raised its bull case weights for both these stocks.Morgan Stanley said that UltraTech Cement remains its top pick.As demand is expected to remain relatively lukewarm during monsoons, Morgan Stanley does not see any material price hikes happening over the next few months. "Against this backdrop, we think there could be downside risks to F25 consensus earnings, and hence we see no clear triggers for stock performance in the near term," it said.However, from a medium-term perspective, the brokerage remains constructive on the space given the demand-led margin expansion story remains intact.Morgan Stanley believes there are limited risks to FY26 consensus earnings as of now and margin expansion will be mainly led by cost improvement, supported by nominal price hikes. Against this backdrop, companies with pan-India franchises and cost-improving capabilities look relatively better positioned, it noted.Key assumptions behind its bull case price targets are led by changes to its earnings estimates ahead of Q1 results; valuation roll-forward by six months to September 2025; changes in probability weights for UltraTech, ACC, and Ambuja Cements; and changes in subsidiaries values at Grasim.Cement stocks under Morgan Stanley's coverage have shown divergent trends over the past couple of months, with UltraTech Cement and Ambuja Cements doing better than other large peers.The brokerage believes this was likely led by prospective market share gains on the back of several inorganic expansion announcements.Both UltraTech Cement and Ambuja Cements are up 22% and 17%, respectively during the period as against Sensex up 10%.Other large stocks, on the other hand, underperformed as the industry continued to struggle with extended periods of cement price rollbacks.Recently, Nomura made a Double Upgrade on Ambuja Cements. The brokerage has a 'Buy' rating on the Adani Group cement company, compared to its earlier rating of 'Reduce'. It had also increased the price target on Ambuja Cements to ₹780 from ₹500 earlier.The target multiple on Ambuja Cements has also been revised higher to 19x from 14x earlier.UltraTech Cement, India's largest cement company trades at a multiple of 17x one-year forward earnings.Motilal Oswal has also recently upgraded Ambuja Cements to 'Buy' from its 'Neutral' rating earlier given its value-accretive acquisitions in the last one year, which it believes will help the company balance its market presence and ambitious organic expansion plans.
